Newspaper article The Christian Science Monitor

US Economic Woes Will Take Years to Work Out

Newspaper article The Christian Science Monitor

US Economic Woes Will Take Years to Work Out

Article excerpt

THE United States economy is marking time. It has been rocking along the bottom since April 1991. At the crucial point - just as we were sliding into recession - there was no help from policymakers in Washington. In late 1990, they gave us tax increases, spending cuts, regulatory expansion, and banking restrictions. As some of us warned at the time, the result would be a longer recession than was generally expected.

The upturn will be slow when it comes, hopefully by midyear. For 1992, I forecast about 2 percent real growth, 3 percent inflation, and 7 percent unemployment (nothing for the Guinness Book of World Records). It will take years to work out problem areas, such as the surplus of commercial real estate. Large defense cuts are on a five-year time frame (reductions of at least 25 percent from current budget levels), and environmental and other regulatory burdens are going higher.

Some showboating tax cuts may be made in this election year. Using what can be called a "cynical leading indicator," it is likely that any revenue changes enacted will take effect after the upturn is clearly in place. Cutting "middle class" taxes and paying for the revenue loss by "soaking the rich" is the most primitive political response to what worries the American people. Jobs are not created by cutting your taxes and raising the other fellow's.

The slowdown in the US economy will extend beyond the recession. The US is adjusting to a variety of challenges simultaneously, ranging from the end of the cold war to the deleveraging of business finance. The wonder is not that the economy is staggering under that load, but that it is doing as well as it is.

The upturn is behind schedule because the normal forces of recovery are being deflected by the process of retrenchment and adjustment. Declining interest rates and rising stock prices have led to new issuance of equities on a large scale.

However, much of the proceeds is going to strengthen balance sheets, rather than being invested in new plant and equipment. …

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